PepsiCo Inc.

PEPSICO INC. $61 (New York symbol PEP; Conservative Growth Portfolio, Consumer sector; Shares outstanding: 1.6 billion; Market cap: $97.6 billion; Price-to-sales ratio: 2.3; Dividend yield: 3.0%; WSSF Rating: Above Average) will pay $900 million for the right to make and distribute certain soft drinks in North America owned by Dr. Pepper Snapple Group Inc. (New York symbol DPS). The price is equal to 52% of the $1.7 billion, or $1.09 a share, that PepsiCo earned in the third quarter of 2009. This new 20-year contract replaces existing deals with PepsiCo’s two main bottlers, which the company is buying in 2010. Dr. Pepper drinks account for around one-third of the bottlers’ profits, so extending this licensing deal enhances their prospects. PepsiCo is a buy.

ALCOA INC., $14.24, New York symbol AA, rose 10% this week after it reported better-than-expected earnings and sales. In the three months ended September 30, 2009, the aluminum maker earned $73 million, down 76.1% from $306 million a year earlier. Earnings per-share fell 81.1%, to $0.07 from $0.37, on more shares outstanding. Alcoa has seen weaker aluminum demand from clients in the automotive, aerospace and construction industries. In response, the company has consolidated plants and laid off workers. These moves should lower Alcoa’s costs by a total of $2.4 billion a year. If you exclude restructuring costs and a gain related to its increased investment in an alumina-refining operation in Suriname, the company would have earned $0.04 a share in the latest quarter. On that basis, analysts were expecting Alcoa to lose $0.10 a share....

VANGUARD GROWTH ETF $49.28 (New York symbol VUG; buy or sell through brokers) aims to track the MSCI U.S. Prime Market Growth Index, a broadly diversified index that mainly consists of stocks of large U.S. companies. The fund has an MER of just 0.15%. The $14.0-billion fund’s top holdings are Microsoft, IBM, Apple Inc., Cisco Systems, Wal-Mart Stores, Google Inc., Hewlett-Packard, Procter & Gamble, Philip Morris International and PepsiCo. Vanguard Growth ETF is broken down by economic segment as follows: Information Technologies (34.2%), Health Care (15.5%), Consumer Staples (14.7%), Consumer Discretionary (11.9%), Industrials (7.9%), Energy (6.3%), Financials (4.7%), Materials (3.8%), Telecommunication Services (0.6%) and Utilities (0.4%)....

Pennsylvania-based Vanguard Group is one of the world’s largest investment-management companies. It manages over $1 trillion U.S. in 150 mutual funds. Vanguard, which went into business in 1975, offers low-fee index mutual funds. Generally speaking, Canadians can’t buy units of mutual funds that are registered in the U.S. because they aren’t registered with provincial securities commissions. For that matter, some Canadian funds aren’t available in all provinces. Canadians can, however, buy Vanguard exchange-traded funds (ETFs) that are listed on U.S. stock exchanges. We don’t recommend all of the Vanguard index funds, but here are two that we do see as low-fee buys:...

Starbucks Corp., $19.50, symbol SBUX on Nasdaq (Shares outstanding: 737.1 million; Market cap: $14.4 billion), is a leading retailer and roaster of specialty coffee. Starbucks has 6,871 company-operated stores and 4,395 licensed stores in the U.S. It also has 5,463 stores in over 40 international markets, including 2,061 company-operated outlets and 3,402 joint-venture and licensed stores. In all, Starbucks has 16,729 stores. Roughly 1,000 of these are in Canada. Starbucks offers high-quality coffee and beverages in a variety of flavours, as well as pastries, salads and sandwiches. It also sells coffee-related merchandise (including coffee mugs and coffee machines), plus books, DVDs and CDs. The company has revamped its menu to include oatmeal and fruit smoothies. In addition to its retail operations, Starbucks’ consumer-products group produces bottled water, coffee drinks, espresso drinks and ice creams through joint ventures with companies such as PepsiCo, Kraft Foods and Unilever. In its third quarter, which ended June 28, 2009, Starbucks’ revenue fell 6.6%, to $2.4 billion from $2.6 billion a year earlier. Excluding one-time items, earnings rose 55.4%, to $179.9 million, or $0.24 a share, from $115.8 million, or $0.16 a share....

PEPSICO INC., $57.74, New York symbol PEP, increased its offer to buy its two main bottlers: Pepsi Bottling Group Inc. (New York symbol PBG) and PepsiAmericas, Inc. (New York symbol PAS). Both have now accepted PepsiCo’s offer, which is worth $7.8 billion. To put this in context, PepsiCo earned $1.7 billion, or $1.06 a share, in the second quarter of 2009. PepsiCo already owns 33% of Pepsi Bottling Group and 43% of PepsiAmericas. The company first offered to buy these bottlers last April for a total of $6 billion in cash and shares, but they rejected this amount as insufficient. In response, PepsiCo launched the new bid, which is a 30% increase over its first offer. The deal should close later this year, or in early 2010, and will give PepsiCo control over 80% of its North American beverage volumes. By consolidating plants and administrative functions, the company feels it can lower its annual costs by $300 million by 2012. That should add $0.15 a share to its annual earnings. Owning these bottlers will also make it easier for PepsiCo to launch new products, and react more quickly to changing consumer tastes in different regions....

THE BOEING CO., $41.88, New York symbol BA, fell 13% this week after it delayed the initial test flight of its new 787 Dreamliner plane for a fifth time. The company had hoped to perform the flight by the end of June. The delay was caused by the discovery of weakness where the wings connect to the plane’s body. Boeing’s management feels that the problem is small, but it has postponed test flights for now. This, in turn, will delay deliveries to customers; Boeing had planned to start delivering 787s in the first quarter of 2010. The recession has hurt global travel volumes, so many airlines would probably prefer to postpone buying new 787s anyway. But some will probably still demand millions of dollars in compensation....

IVY FOREIGN EQUITY FUND $25.26 (CWA Rating: Conservative) gained 2.1% over the past 10 years, which was better than 3.1% loss posted by the Morgan Stanley benchmark international index. Over the last year, Ivy Foreign Equity Fund lost 10.7%. The fund invests in companies based outside of Canada, but cuts its risk by avoiding direct investment in emerging markets. The $1.9-billion fund holds 52.8% of its assets in the U.S., 10.4% in France, 10.1% in Switzerland, 8.9% in the U.K., 3.2% in Sweden and 3.0% in Denmark. It holds 11% of its assets in cash. Ivy Foreign Equity is one of our top foreign-fund recommendations. Still, we think non-U.S. international funds should make up no more than 10% of a conservative investor’s portfolio....

In the past, investors bought mutual funds within the “fund families” promoted by fund sellers for a couple of main reasons. Mutual funds within a particular fund family often shared some key investment characteristic, such as a conservative or aggressive investment approach, or a stress on value as opposed to growth. That let investors switch between funds within the family at little or no charge. This way, they could rebalance their portfolios and still maintain a common investment philosophy. But it also encouraged frequent trading. That can cause investors to miss out on some of their biggest gains....

Generally speaking, Canadians can’t buy units of mutual funds registered in the U.S., because they aren’t registered with provincial securities commissions for sale in Canada. For that matter, some Canadian funds are not available in all provinces. Canadians can’t buy Vanguard index mutual funds. They can, however, buy Vanguard ETFs listed on stock exchanges. Vanguard Dividend Appreciation ETF, $39.29, symbol VIG on New York, tracks an index of about 200 stocks screened for a history of rising dividends. The top holdings are currently Wal-Mart Stores, International Business Machines, The Coca-Cola Co., PepsiCo, Chevron Corp., Johnson & Johnson, McDonald’s Corp., Abbott Laboratories, ExxonMobil and Procter & Gamble. Vanguard Dividend Appreciation ETF’s MER is 0.28%, and it has a dividend yield of 2.8%. Vanguard Dividend Appreciation ETF is okay to hold....